Flashcards in 5. Why Did The Crash Happen? Deck (11):
List the 10 possible reasons for the crash
- Falling demand for consumer goods
- Get rich quick schemes
- the Florida Land Boom
- Problems with agriculture
- Town and country
- Problems with old industries
- Banking system
- Over speculation on the stock market
- Easy credit
- Loss of confidence
How did falling demand for consumer good contribute to the Wall Street crash?
- The boom in car ownership slowed as the market became saturated
- Fall in demand for consumer goods largely due to the wealth disparity
- USA couldn't sell its surplus products - the gov had imposed high tariffs on goods coming in
What were the 'Get rich quick' schemes?
- Lots of people just wanted to get rich, so invested in hugely speculative ventures and many lost their money
- This provided opportunities For crooks like Charles Ponzi - who promised 50% profit within 90 days. Thousands of gullible and greedy people were conned
What was the Florida land boom and how did it help to cause the crash?
- Ponzi began selling land Florida, meaning that the population rose to 1.2million - there were large scale coastal developments and wealthy northerners brought land
- Demand fell in 1926. In a series of hurricanes, 400 died and 50,000 left homeless
- The Florida land boom had collapsed
How did agricultural problems contribute to the boom?
- After WW1, demand and prices fell to only $1 per bushel on average
- Farmers were producing more food then was needed, and demand fell largely due to synthetic fibres
- Demand for cotton and grain also fell (because of prohibition)
How did town and country matters contribute to the crash?
- The north south divide remained prominent - many areas in the south faced poverty due to poor agriculture. By 1928, half of all US farmers were living in poverty
How did problems with old industries contribute to the crash?
- Many industries faced long term difficulties in the 20s, eg demand for coal fell as gas and electricity were more widely used and there was more competition (eg Poland) and many lost their jobs
- Textile industry also had problems - tariffs were lowered so they faced competition from abroad, and new man made fibres were cheaper to produce. Massachusetts suffered badly
How did the banking system contribute to the crash?
The banking system was out of date by the 1920s - it consisted of 12 regulatory reserve banks, headed by the federal reserve board.
- They acted in the interests of the banks rather then the nation as a whole
- Local banks weren't part of the centralised system - and they couldn't cope with financial problems
- FRB wanted to keep market buoyant so favoured low interest rates (3.5%) - encouraged the 'bull market'
How did easy credit help contribute to the crash?
- People were able to buy goods without having all the money up front. Customers paid instalments in hire purchase, and brought shares in credit - 'on the margin'
- Problems arose well prices began to fall
- 75% of the purchase price of shares was borrowed - this created artificially high prices
How did a loss of confidence contribute to the crash?
- The market was maintained largely by the confidence people had in it. In Autumn 1929, people began to sell their shares before they lost any more value, so small investors panicked and rushed to sell their shares, leading to a complete collapse in prices